October 24, 2011
Chinese corn demand may be higher than estimated
China's corn demand is probably far higher than the estimated amount of 182 million tonnes disclosed by the official US data, according to FCStone.
Troy Lust, senior risk manager at the broker, said that he had no problems with estimates that the Chinese corn harvest, the world's second biggest, would come in around the record levels of 185 million tonnes suggested by official data in both China and the US.
However, he also stated that 80% of official Chinese data was misleading, with the difficulty sorting out the 10-20% which is useful.
The ideas of the crop outpacing demand were not borne out by market prices of corn, which had dropped the equivalent of about US$0.40 a bushel from highs in what, amid harvest, should be a seasonally weak period for prices as the spike in supplies hands power to buyers.
"The market is telling me that demand is much larger than China or USDA," Lust said, estimating the true figure at about 200 million tonnes.
Indeed, the high corn prices were a reflection of the fact that Chinese corn users were operating at the bottom of the bins.
China had sold 30 million tonnes from state inventories since the start of 2010.
Consumption was being spurred by fast growth in pig production, to meet soaring pork consumption, which has "sucked along prices of protein and particularly corn", Troy.
The shortfall looked set to boost China's corn imports, with Troy saying he was comfortable with estimates of eight to nine million tonnes, which fell within the leeway allowed by a self-sufficiency target of 95%, although there was potential for far more.
The USDA forecasts China's 2011-12 corn imports at two million tonnes.
The comments came as US grain industry leaders reported that China was tightening restrictions on corn use, with the country using sales from state stocks as a means to monitor the sector.
"Industrial processing companies and possibly small feed mills and livestock farms are likely to be the first sectors affected, followed by large enterprises like Cofco and the China Grains & Logistics Corporation," the US Grains Council said.
"Finally, large grain enterprises could see restrictions on purchase volumes, and bank lending for some large buyers could be tightened."
The council, which promotes US grain exports, also highlighted comments by Zhang Xiaoqian, vice director of China's National Development and Reform Commission, the country would use uge foreign currency, largely dollar-based, reserves to "buy staple commodities as needed".
According to Shanghai-based analysis group JC Intelligence, "that could mean more US commodity sales as the dollar appreciates and commodity prices fall".
The prospect of larger Chinese corn imports, a highly sensitive point for Chicago prices, held dangers as well as opportunities, potentially causing major disruption.
"If China really wants to enter the world market, and import 10 to 15 million tonnes, that will leave existing consumers to work out how they will not use 400 to 500 million bushels," Troy said.
However, he raised doubts over the country's ability to raise its own output, with farms averaging 0.6 hectares, and with those concerns which were bigger, and so operated with greater efficiency state run enterprises where workers were not incentivised to maximise output.